By Jessica Rabe of DataTrek Research
Whenever I attend family events, at least one person asks me an investment question given what I do for a living. Thanksgiving should be no different and I’m sure the same goes for many of you. So today I thought I’d help bridge the gap between Baby Boomers and my own Millennial cohort by explaining how I’d field potential investment inquiries from younger adults :
#1: “I’ve made a lot of money in digital currencies, what should I do now?” My answer here would revolve around risk management. It’s easy to develop a higher risk tolerance after reaping huge gains from an investment. Here’s an example I’d give:
Any sports fan has likely seen this scenario play out: one team is up big, so they grow more comfortable making risky plays. The other team exploits this sloppiness and quickly ties the score. The team that lost their advantage panics, contributing to further sloppiness as they try to regain their lead before the game ends.
The same situation often happens when investing. Most investments made in popular digital currencies since the pandemic started are deeply in the money. This can give people a false sense of security, which fuels subsequent risky investments and even pushes prices higher in the near-term. The trouble is once these prices correct, investors tend to make poor decisions such as holding on too long on the way down and then implementing dicey strategies as they try to recover their losses.
Millennials need to understand that this newly earned money in digital currencies is still “theirs” and that future investment decisions should be made independent of their prior experience. And just like...